At $13.07 a share, the stock (ticker: NBR) is down more than 50% from its 52-week high of $27.63 reached last August. It is trading at a paltry six times estimated earnings of $2.19 a share for this year and about five times projected earnings of $2.51 a share for 2013, despite Wall Street expectations for earnings to increase by 15%.

The shares have been hurt by falling prices for natural gas, and investor anger over executive perks and severance packages. But shareholders look to be getting a stronger say in corporate governance, and there are lots of reasons to be optimistic. Its domestic drilling business in the lower 48 states has performed well despite industry challenges. Nabors' Alaska and offshore operations have rebounded, and its overseas operations appear to be recovering. Progress has been made in jettisoning noncore businesses, and those asset sales will help reduce a hefty $4.8 billion in debt. Strong free cash flow will also be used to pay down debt. The company is targeting a net debt-to-capitalization ratio of 25% in two years from the current 45%.

Margins at Nabors' international operations are set to improve in the second half of this year and into next year as contracts are repriced. Last year, business in Saudi Arabia and North Africa, two areas that account for about half the overseas fleet, were disrupted by the Arab Spring uprisings, resulting in higher labor costs in Saudi Arabia and lower rig utilization in North Africa. Company officials believe the first quarter marked the bottom of the cycle in the international business.

Perhaps more important, a cultural and strategic transformation appears to be taking hold at Nabors under the new CEO, Anthony Petrello, and some new blood on the board—lead director John Yearwood, the former chief executive of Smith International, a respected oil- and gas- equipment maker that was sold to Schlumberger in 2010.

Here's the Drill

Nabors' domestic drilling business has performed well, leading to expectations of double-digit profit growth. Yet, the stock is trading for six times earnings.

The changes are showing up in the customer-satisfaction rankings conducted by independent oilfield tracker Doug Sheridan and his Houston-based EnergyPoint Research. Nabors ratings, though still low or average, are trending higher, reflecting improvements in pricing and contract terms, service, technology, and other factors. Nabors didn't respond to requests for comment.

Any way you look at it, the stock appears undervalued. Nabors trades at less than four times enterprise value to Ebitda, or earnings before interest, taxes, depreciation and amortization, despite historically fetching a multiple of more than five. At five times EV to Ebitda, or cash flow, the stock would be worth closer to $23 a share, according to Michael Lamotte of Guggenheim Partners. A price/earnings ratio of 12 would result in a stock price closer to $22, according to his reckoning, representing gains of 65% to 70%. Lamotte's one-year target price is $22 a share.

Deutsche Bank's Mike Urban sees the stock hitting $30 a share and trading for 5.1 times cash flow—calculated by blending average historical price/cash flow multiples of estimated international and North American cash flow. Pritchard Capital Partners puts a value of $32 on the stock after assigning a multiple of five to an estimate of $2.5 billion in cash flow in 2013.

NABORS' FALL FROM GRACE is directly related to the company's history of bestowing lavish pay and perks on its executives. An uproar ensued last fall when its former CEO, Eugene Isenberg, was set to receive a $100 million cash payout due to a "change-of-control" clause in his contract triggered by the board removing him from the CEO position. The 81-year-old Isenberg eventually relinquished his right to collect the payment. Isenberg, who remains chairman, is credited with leading Nabors, formerly known as Anglo Energy, out of bankruptcy in 1987 and has been amply rewarded ever since. From 1992 until he stepped down last fall, Nabors paid him $750 million, including exercised stock options. He regularly jetted between headquarters in Houston and his homes in Palm Beach, Fla., Martha's Vineyard, Mass., and New York.

The Bottom Line

The shares, hurt by falling natural gas and a controversy over severance packages, could hit $30 as asset sales and big debt reductions pay off.

At Nabors' recent annual meeting, shareholders overwhelmingly rejected the company's executive pay plan and, in a nonbinding resolution, won oversight of severance packages that totaled more than 2.99 times base salary and bonus. A majority also voted in favor of a resolution to allow shareholders who hold at least a 3% stake for three years to nominate directors.

The votes should give investors more confidence that their interests will be served. While CEO Petrello was Isenberg's right-hand man for many years, early signs suggest he is his own man and interested in leaving a different legacy.

A bet on Nabors at current levels could pump up portfolios for some time to come.